There appears to be a few syntax issues with your code. I noticed that a few of your "for loops" don't have opening curly braces and one of your statements
found = false is missing the semicolon. Your printlns also need to be changed from
letters to something like
letters[index]. That way it will display each character at a time like I am sure you meant for it to do.
But as far as your first question it really depends what you want it to do. Normally when you ask for input from the user it will cause the program to pause execution until they enter a value, then it will process that value and call other parts of the program to execute.
Other times you require the program to continue in an endless loop until the user does something to break the loop or change how the loop behaves (this is how some games work).
I think you will need to clarify further what you mean by "..going to my other code". What is that other code? A function? A separate file?
As for making GUI interfaces, you can go two different routes. You can use AWT which is for the more simple components without all the flashiness or you can go with Swing which gives you those pretty buttons and stuff.
I recommend swing because everything looks nice when you are done. Below is a nice site to showing you the start of swing. You can find tons of more articles on the net by typing "java swing tutorial" into Google.
Java GUI tutorial - Swing basicsHope you find it useful. If you get stuck, feel free to come back here and we can work out any other errors you get.